Federal vs. Private Student Loan Terms: What’s the Difference?

By Rachel Seitz

You’ve enrolled in a course, made campus visits, met with the teachers, and even did some pre-work in preparation for your class. You’re on the way to your dream career. But first, there’s one big question you have to answer: how are you going to pay for this? If you’re like millions of Americans, the answer is student loans. (And, according to a recent LendEDU survey, 36% of millennials currently carry student loan debt.) These loans come in two main types: federal and private. Below, we’ve outlined and explained the key differences between the two.

Federal Student Loans

Federal student loans are, you guessed it, loans provided by the federal government. And because the funding is provided by the government, loan terms are standardized throughout the US. Depending on the type of federal loan you receive, you’ll have an interest rate between 5.05% and 7.6%*. Federal loans are not allocated based on credit history, so you don’t need to worry about having good credit when filling out your FAFSA form.

Federal loans are not an option for everyone though. Many institutions — such as vocational schools and coding bootcamps — are not eligible for federal financial aid.

Private Student Loans

Private student loans are provided by private companies and may have higher interest rates. Since the rates are set by each company, loan terms vary between them. They may have fixed or variable interest rates, and payments may be deferred while you are in school or begin immediately. Underwriting is also stricter for private companies. Many companies will look at credit history when considering an application, and when they do each company will place varying weight on the factors — like credit score, history of making payments on time, and the debt-to-income ratio— that they look at. At Climb, we also consider your potential future income when deciding whether to make a loan. Because of our school underwriting process, we're able to offer more students better rates.

Another key difference in federal vs. private student loans is that, since they’re not using government funding, private companies are able to step in and provide financing where federal loans are not available. This is why all of us at Climb are so proud of the fact that, to date, thousands of students have been able to attend coding bootcamps and vocational schools — schools which they otherwise may not have been able to attend due to the absence of federal or other financing alternatives.

When applying for financing, it’s always in your best interest to know what options are available — and, whether your best option ends up being a private or a federal loan, to understand how which type of lender you’re using influences your loan. Because, as we can see from the LendEDU survey, for many of us this will be a decision that lasts!

*These numbers reflect the federal interest rates for loans first disbursed on or after July 1, 2018, and before July 1, 2019.

*All outcomes information has been collected by Climb on a good-faith-efforts basis, however, this information relies on inputs beyond Climb's ability to test or control. Accordingly, Climb makes no representation or warranty as to the accuracy of this information and this information should not be relied on in making a decision whether or not to attend a course at the above-referenced entity. Schools do not endorse loans originated by Climb InvestCo, LLC, and Climb InvestCo, LLC is not affiliated with any school.